What is redundancy pay
A redundancy payment is compensation because your job has disappeared. You may have the right to redundancy pay from your employer. There are two sorts of redundancy pay:
- statutory redundancy pay, which is set down by law
- contractual statutory pay, which you may get if there is a redundancy scheme in place where you work. The details will be set out in your contract of employment.
You cannot be paid less redundancy pay than the amount of statutory redundancy pay you are entitled to. If your contractual redundancy scheme gives you less money than the statutory amount, you must still get the statutory amount.
Who has the right to statutory redundancy pay
Only some people are entitled to statutory redundancy pay. You will be entitled to statutory redundancy pay if:
- you've worked for your employer for at least two calendar years continuously since school leaving age, and
- you're an employee.
Most people in work are employees, but if you're self-employed, a short-term casual worker or an independent contractor, you are unlikely to be an employee and you won't be entitled to statutory redundancy pay.
Some agency workers and freelance workers count as employees but not all of them.
If you are on a fixed-term contract, you may be entitled to statutory redundancy pay. Your contract needs to be at least two years long or more. This also applies if you have shorter contracts which follow on from each other, as long as the total period of time is at least two years. If the contract (or the last contract in the series) runs out and is not renewed because your job is no longer needed, you will be entitled to statutory redundancy pay.
For more information about who counts as an employee, see Contracts of employment.
To find out more about when you can be made redundant, see When can your employer make you redundant.
There are some workers who are never entitled to statutory redundancy pay. These are people in certain occupations, such as share fishermen, civil servants and police officers.
Even if you're not entitled to statutory redundancy pay, you may be able to get contractual redundancy pay. Most public employees, including civil servants, have a right to contractual redundancy pay which gives them similar or better rights than a statutory payment. You should check your contract of employment to see what it says about your entitlement to redundancy pay.
Losing the right to a statutory redundancy payment
There are some circumstances in which you can lose your right to statutory redundancy pay. Some examples of these circumstances include:
- if your employer has offered you a suitable alternative job which you have refused to take up without a good reason
- if you want to leave before the date your employment is due to end, for example, if you've found another job. However, you may still be able to keep your redundancy pay as long as you follow certain procedures.
If you want to leave before the date your employment is due to end end, you should seek the help of an experienced adviser, such as at a Citizen's Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.
How much is statutory redundancy pay
The amount of statutory redundancy pay you can get depends on a number of things. These are:
- how long you've worked for your employer
- your age
- your weekly pay.
You have the right to:
- half a week’s pay for each complete year of employment when you were below the age of 22
- a full week’s pay for each complete year of employment when you were between the ages of 22 and 40 inclusive
- a week and a half’s pay for each complete year of employment when you were aged 41 or above.
You can't be given statutory redundancy pay for more than 20 years' employment.
Employment is counted up to the date your notice runs out. If you haven't been given any notice, it is the date on which your notice would have run out if you had been given it. This will depend on what notice you're entitled to by law.
Remember that you might also qualify for pay instead of notice (pay in lieu of notice), in addition to your redundancy payment.
For more information about what notice you're entitled to by law, see Redundancy – procedures your employer must follow. There is also information about pay in lieu of notice in England, Wales and Scotland in Notice of dismissal from work in Employment fact sheets.
What does weekly pay mean
The weekly pay which is used to work out your redundancy payment is usually your normal weekly gross pay at the time you were made redundant. Gross pay means pay before tax, national insurance and any other legal deductions have been made.
There is a maximum weekly limit which is currently £475. This means that even if you earn more than £475 a week (£490 in N. Ireland), your redundancy pay will be based on weekly earnings of £475 (£490 in N. Ireland).
If you changed from full-time work to part-time work and then you are made redundant shortly afterwards, your weekly pay will be calculated at the part-time rate. This is because the calculations are based on how much you are earning when you are made redundant.
If you get paid commission on a regular basis, this should be included in your week’s pay.
A week’s pay does not include overtime pay unless the overtime was regular and you have to do it as part of your job.
If your earnings vary each week, an average of the 12-week period leading up to the redundancy is used.
You can use an online calculator (called a ready reckoner) to help you work out how much statutory redundancy pay you're entitled to. This will help you work out the minimum legal payment. You should check your contract of employment to see if it gives you more than the minimum amount.
You can find the ready reckoner on the Directgov website at www.direct.gov.uk or in Northern Ireland on the Nidirect website at www.nidirect.gov.uk.
Must you pay tax on a redundancy payment
You don't pay tax on a statutory redundancy payment.
You do pay tax on a redundancy payment if it is more than £30,000. You may need tax advice.
If the payment is less than £30,000 but more than the statutory amount, you may have to pay tax, depending on the circumstances. This is because some payments you are given when you are made redundant, aren't treated as redundancy payments. The situation is complicated and you should get tax advice.
An experienced adviser, such as at a Citizen's Advice Bureau, can help you get tax advice. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.
How should a statutory redundancy payment be made
Your employer is responsible for making a statutory redundancy payment to you on, or soon after, the date your employment ends. You don’t need to make a claim for your redundancy statutory payment unless your employer fails to pay you or claims that you don't have a right to the payment.
When your employer makes the redundancy payment, they must give you a written statement saying how they have calculated the amount.
Your employer refuses to pay you statutory redundancy payment
If your employer fails to pay you redundancy pay, or claims you don't have the right to redundancy pay, you should ask your employer for the payment in writing. You must write within six months of the date your employment ends. This applies both to statutory redundancy pay and contractual redundancy pay. If they still don't give you the payment, you can make a claim to an employment tribunal. However, you only have three months to make a claim to an employment tribunal if:
- you also want to claim unfair dismissal
- you also want to claim discrimination.
For more information about making a claim for unfair dismissal or discrimination, see Dismissal.
If your employer is refusing to give you your redundancy pay, you should seek the help of an experienced adviser, such as at a Citizen's Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.
Claiming redundancy pay if your employer has stopped trading
If your employer has gone out of business (is insolvent) and an administrator or liquidator has been appointed, they should give you form RP1. If they haven't, you should contact them at their registered office. The liquidator will then claim it from the National Insurance Fund.
You can now apply to claim for redundancy payments through the GOV.UK online service. You can use the 'Redundancy payments factsheet' (issued with RP1) to help you complete your claim.
If you don't know who the liquidator is, you can call the Redundancy Payments Office (RPO) Helpline on 0845 145 0004, or, in Northern Ireland, the Redundancy Payments Service Helpline on 0800 585 811.They will be able to advise you on what to do and may be able to send you a copy of the form.
If no liquidator has been appointed, you can call the RPO Helpline for a copy of the RP1 or order a copy from the Department for Business, Innovation and Skills website at www.bis.gov.uk.
If your employer has stopped trading but is not insolvent, write to your employer claiming your statutory redundancy pay. If your employer doesn't make the payment, you can make a claim to an employment tribunal. You must do this within six months of the date your employment ends.
If an employment tribunal decides that you have the right to statutory redundancy pay but your employer still doesn't pay it, you can make an application to the National Insurance Fund for your redundancy payment.
Independent financial advice about redundancy pay
If you get redundancy pay, you might want to get independent financial advice about what to do with your money. The following organisations can help you find an independent financial adviser:
Institute of Financial Planning (IFP)
Personal Finance Society (PFS)